Don't forget you'll need electric, water, and sewer hookups in your backyard , which may require permits.  

I've got a unit (townhouse) that has sustained some water damage as a result of contractor error when replacing the roof. 

Building was condemned and had roof leaks, pulled water/electric/gas meters.

The water heater goes out and costs $800 to replace (eight months of income) or a bad tenant causes $2,000 in damages and forces a month of vacancy.

@ me I'd be your first poster talking to you at the proverbial water fountain during our lunch break!

This includes the fact that I currently pay for trash and water, but eventually want to have the tenants cover water expenses. 

You should always check out the major systems in the property i.e. the roof, the A/C, the water heater, the foundation, etc..

I need to replace 2/3 of the current water heaters.

Even accounting for electric, water, and sewer hookups needing to be set up, it seems plausible that buying one of these as a rental could offer a better ROI than constructing a freestanding ADU building.

For instance, if you have 50 residential units, with 50 roofs, 150 toilets, 50 hot water tanks, etc. you have a huge liability at any given moment where nearly all of the repair and maintenance expense is on you.